BI Expected to Stop Raising Interest Rates! Happy or Beware?

Jakarta, CNBC Indonesia – Market participants are starting to expect Bank Indonesia (BI) to loosen its aggressive monetary policy by holding its benchmark interest rate this month.

BI will hold a Board of Governors Meeting (RDG) on Wednesday and Thursday (18-19 January 2023).

Collected market consensus CNBC Indonesia divided between those projecting an increase in the benchmark interest rate and those expecting the central bank to hold its benchmark interest rate.

Of the 13 institutions involved in forming the consensus, 10 institutions/institutions estimate that the central bank will raise the BI 7-Day Reverse Repo Rate (BI7DRR) by 25 to 5.75%.

As many as three institutions/agencies project that BI will hold interest rates at the level of 5.50%.

For the record, BI has raised the benchmark interest rate by 200 bps in the August-December 2022 period to 5.50%.

The Deposit Facility interest rate is 4.75%, and the Lending Facility interest rate is 6.25%.

BI even aggressively raised interest rates by 50 bps for three months in September, October and November 2022. The 200 bps increase in interest rates was the most aggressive since 2005.

Bank Permata economist Josua Pardede estimates that BI will maintain its benchmark interest rate at 5.50% this month in line with sluggish general and core inflation.

For the record, general inflation was recorded at 5.51% (year on year/yoy) in 2022 while core inflation is 3.36% (yoy). Last year’s inflation rate was far below the previous projection, namely in the range of 6-7%.

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“Apart from controlled inflation, the performance of the United States (US) dollar against major currencies tends to be corrected, thereby encouraging the strengthening of the rupiah,” said Josua, to CNBC Indonesia.

NEXT PAGE >>> Rupiah Strengthening Helps BI Manage Monetary Policy

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